The Crack-Up Boom series is exploring
the unfolding �Indirect Exchange� (as detailed by Ludvig von Mises),
that dollar holders will be using now to exit their holdings and
eventually will be followed by all holders of fiat currency holdings, no
matter which country is perpetrating the �fraud� of confiscation of
wealth through the printing and credit creation process that all such
monetary schemes evolve into. The �Crack-up Boom� will drive an
inflationary global expansion to inconceivable heights over the coming
years. Asset prices will skyrocket as people do what they always do when
threatened; they will modify their behavior and do the things necessary
for �SELF PRESERVATION� of their families, countries, economies and
their wealth. Let's take a look at von Mises� description of the
CRACK-UP BOOM once again:

This
first stage of the inflationary process may last for many years. While
it lasts, the prices of many goods and services are not yet adjusted to
the altered money relation. There are still people in the country who
have not yet become aware of the fact that they are confronted with a
price revolution which will finally result in a considerable rise of all
prices, although the extent of this rise will not be the same in the
various commodities and services. These people still believe that prices
one day will drop. Waiting for this day, they restrict their purchases
and concomitantly increase their cash holdings. As long as such ideas
are still held by public opinion, it is not yet too late for the
government to abandon its inflationary policy.

But
then finally the masses wake up. They become suddenly aware of the fact
that inflation is a deliberate policy and will go on endlessly. A
breakdown occurs. The crack-up boom appears. Everybody is anxious to
swap his money against "real" goods, no matter whether he
needs them or not, no matter how much money he has to pay for them.
Within a very short time, within a few weeks or even days, the things
which were used as money are no longer used as media of exchange. They
become scrap paper. Nobody wants to give away anything against them.

It
was this that happened with the Continental currency in America in 1781,
with the French mandats territoriaux in 1796, and with the German mark
in 1923. It will happen again whenever the same conditions appear. If a
thing has to be used as a medium of exchange, public opinion must not
believe that the quantity of this thing will increase beyond all bounds.
Inflation is a policy that cannot last. Thanks again, Ludvig.

Unfortunately, for us
all this is now NOT an isolated currency policy as detailed in the last
paragraph, because globally virtually �ALL� governments are pursuing
this policy at this point in time. So first we will see the biggest
offenders suffer from their hubris, AKA the �UNITED STATES�, and
then it will rotate to all countries which follow such monetary
policies. Public Servants always and every time have become Public
Serpents, robbing their constituents to further their personal ambitions
and collection of power and wealth.

Escape
from the dollar

Over the last year and
a half we have witnessed several attempts by the foreign holders of
dollars stymied in their attempt to spend them as they wish. Distant in
our memories but key to my observations are the �Dubai Ports World�
and �Unocal� demagoguery by the Mandarins in Washington DC. In those
instances Foreign dollar holders were �STIFFED� in their attempts to
�SPEND� the dollars they had accepted in exchange for exports they
had sent to the US. The �CRACK-UP BOOM� is one of the unintended
consequences of that idiocy. These rascals in Washington really are
economically challenged.

In the Dubai Ports
World debacle, Middle East oil producers were looking to diversify their
businesses into the ports business (managing and operating shipping
ports). They were purchasing these business interests from a British
port operator, who was an international port operator. The purchase had
already been approved by �CFIUS� the US government agency which
studies and approves such purchases in terms of national security. The
acquirer of the US ports management operations was a company called
Dubai Ports World, and was partially owned by the government of Dubai, a
staunch supporter of the United States in the Middle East and a large
purchaser of the US Treasuries that support the budget and trade
deficits of the United States. Then the press got a hold of it, splashed
it on the headlines and the Mandarins decided to show us their
patriotism, the unintended consequences of which are a detriment to
their future money printing plans. They painted the government of Dubai
as �TERRORISTS� to the press. It couldn't be further from the
truth, as anyone who has visited Dubai knows. It is an emerging, modern,
western-oriented financial capital. NOWHERE in the Middle East is it
safer and friendlier than Dubai for western businesses and people. They
were prevented from spending their dollars.

The second incident was
when CNOOC (Chinese national oil company) was attempting to purchase
UNOCAL Oil Company in the United States. UNOCAL was a minor oil company
with its principal reserves situated in �ASIA�. The demagogues
roared once again, shouting how we couldn't surrender this national
treasure to a foreign oil company which is partially owned by the
government of CHINA. So CNOOC said OK, we will split the company up and
only buy the ASIAN part of UNOCAL. This was not enough for the
Mandarins. The company was sold to another domestic US oil company at a
price that was far less than what had been previously offered. Once
again, the government of China is a large purchaser of US treasuries and
accepts those things called dollars for the things they produce. They
were prevented from spending their dollars.

The common thing in
both stories is that these foreign dollar holding entities had accepted
dollars which they are fully aware are being printed like toilet paper,
for their exports to the United States. They exchanged hard goods which
could not be printed for �PAPER� ones, which could be and are. They
then recycled these dollars into treasury bonds of which they are fully
aware they will be paid back in dollars that are worth far less then the
ones they were originally paid in. They even accepted the guaranteed
confiscation inherent in them.

Then the United States
Public servants decided to �CHANGE THE RULES�, from �Accept the
paper and spend it how you wish�, to �Accept the paper and spend it
only on treasury bonds.� OUCH! How could anybody in Washington expect
this to be accepted? Don't they think? The answer is �No�. They
only think about the next election; nothing else matters. But this
stupidity has now come full circle and the �CRACK-UP BOOM� is the
result.

The term �SMART
MONEY� is not exclusive to the United States. It resides in the
financial capitals around the world, in their central banks and in their
financial communities. These counterparties to US trade sat up and said
�Hummm, what are we going to do now?� Quietly, they rolled over.
When you get into a fight it is important to do it at a time of your own
choosing, with the battle plans firmly in place. Rather than dust it up
then, they continued to accept dollars for their wares. Support the
Mandarins in thinking they still had the power. Every day they had a
little less power as they exported their wealth in ever-increasing
amounts ($800 billion annually), and decided to push the envelope of
irresponsibility by starting a war in IRAQ. A war that was supposed to
cost 60 billion dollars has now morphed into a Trillion-dollar black
hole of Capital. The printing presses were pushed into high gear and the
deficits were moved off the books to hide the hideous nature of the
monetary debasement. New entitlements were added in the prescription
drug benefits, spending plans, earmarks and the federal budget began a
trajectory that can only be described as VERTICAL. Remember the
definition above? I quote: �They become suddenly aware of the fact that inflation is a
deliberate policy and will go on endlessly. A breakdown occurs�.

But the �SMART
MONEY� isn't called that by accident. These people are smart!!! So
they devised the plans we are now seeing and recognizing in Asset
markets globally. It is the �INDIRECT EXCHANGE� von Mises spoke
about. They now have come to the conclusion that inflation is now moved
into a higher gear. Foreign dollar holders don't vote, so the US
government is DELIBERATELY pursuing a policy of higher inflation;
fuduciarily sound monetary policy has been abandoned by the US treasury
and the Federal Reserve. This irresponsibility is a result of the
absence of spending restraint and sound fiscal responsibility of the
public servants.

Private equity has also
recognized this new reality (why do you think they can buy assets that
return 4.5% and finance it at the same rate? It's because they are
banking on government behavior in the face of the impossible bills the
US government and consumer have incurred. They will print the money, the
assets will reprice upwards and the borrowers will just pay back dollars
which have been deflated by the printing presses) while the fruits of
the companies they have purchased are just repriced higher. If you think
asset prices of stocks (units of production), real estate, raw
materials, precious metals, and energy are high now, just wait.
Understand this: it’s only the first innings in the coming �MELT
UP� in these asset prices. The coming �CRACK-UP BOOM�, combined
with the excellent fundamentals of 3 billion people exiting from poverty
and becoming middle classes, are the recipe for an orgy of higher
prices. The biggest and smartest money in the world is just getting into
position. When the dumb money realizes what's unfolding it’s the top
of the process. We are not even close to that. It doesn't have a clue.

The acceleration in
asset markets curiously accelerated right after those two
above-mentioned episodes, and it is no coincidence. It is the smart
money modifying their behavior in the face of the implied reneging on
the dollar as a unit of exchange and store of value. It is indirect
repatriation of dollars. Government investment corporations have been
formed in every corner of the globe, gearing up for the coming exit
through the �CRACK-UP BOOM�. And they haven't been proved wrong as
the Hiding of M3 is the wolf attempting to cover its tracks;
reconstructed M3 is reported at 14% growth, it is probably more!

The task of exiting is
enormous. China, Japan and other Asian nations hold over $4.5 trillion
dollars of foreign exchange reserves, and that doesn't count the money
in private hands. The Middle East and Russia represent at least another
2.5 Trillion dollars: Central Europe and Switzerland have got to be at
least another 5+ Trillion dollars. The definition of a Billion
dollars is enormous and inconceivable; the definition of a Trillion
is indefinable. This is a process that will take years or a decade,
barring a debacle which is always possible when you are dealing with the
irresponsible rascals that control the US government. Just think of all
the �MATTRESS� money sitting in homes and small bank accounts around
the globe, as these people held dollars as if they were a true store of
value. That generational assumption is now false and this idea will die
a very slow death.

NO ONE will yell
�FIRE� in this process, so the Mandarins in Washington will always
rest assured in their ignorance as no one challenges them publicly, but
privately work as busy as beavers to effect the rescue of the wealth
they have stored in dollars for as long as they can remember. One by one
nations de-peg their currencies from the dollar and make them
convertible. Currency controls are disintegrating - Russia has opened
their currency to the world and no longer wishes to be paid in dollars
for its exports; the Chinese Yuan is not far behind, I promise you. The
flows into and out of China have to be �let go� by the Chinese
authorities; they are uncontrollable. The law of unintended consequences
says there might be more money wanting to get out of China than wants in
at this point. What if the Yuan GOES DOWN? LOL. Central banks worldwide
are de-pegging from the dollar: Syria and Kuwait are just the latest to
do so.

Recently we have seen
an all-out assault on the US and global bond markets; yields have backed
up over 50 basis points in 4 weeks and peaked over 5.32% last week. A
close look at the commercial and primary dealers� positions showed
they were about to be �FRIED� by the marketplace. So the government
did the predictable thing and bought the market to �SAVE� their
handmaidens and the US financial system. They are sitting in front of a
wave �SO LARGE� as to be almost comical in their belief they can
control it. The US needs over 3 billion dollars of capital to arrive
EVERY DAY just to stay even with respect to the budget and trade
deficits. It is a classic �man versus nature� situation. My bet is
on NATURE! Please explain to me how stocks can be on their highs and
bonds on their lows? Stocks which had about 8% year over year profit
growth in the 1st quarter, and are expected to have 5% growth
in the 2nd quarter are on their highs! How can stocks be on
their highs when earnings are crumbling?

The answer is provided
by a recent missive by Greg Weldon�s money monitor (www.weldononline.com
- this is an excellent effort and a must read for big money managers. Go
there and subscribe; it will pay for itself in no time). Here's an
excerpt:

"Between
Agencies, Corporate Bonds, and Equities, foreigners made net cumulative
purchases of $97.07 billion during the month of April. With that figure
in mind, nearly $100 billion, we note:

"Total
Net Foreign Purchases of US Treasuries ... $ 0.376 billion Yes, less
than $400 million, or, less than HALF A BILLION. Out of $97.4 billion in
"Net Domestic Securities Purchased", US Treasury paper
constituted ONLY four-tenths of one percent of the total.

"There
is NO fear. There is only excess USD liquidity that is flowing into
everything EXCEPT the "low risk, flight-to-safety' sector ... the
US Treasury market. Moreover, "Official Foreign Institutions"
(ie: global central banks) were net BUYERS ... meaning ... private
foreign institutions and investors were actually DUMPING US BONDS, and
reallocating more heavily into equity purchases."

"MORE
problematic ... and something NO ONE seems to be talking about, China
REDUCED their holdings of US Treasuries. Again ... the Chinese Central
Bank DUMPED US Bonds in April. Note:
"Chinese Holdings of US Treasury Bonds ... $414.0 billion, DOWN (-)
$5.9 billion in the month, falling from $419.8 billion.

My
take on these numbers is the �CRACK-UP BOOM� is unfolding as we
speak and this is its fingerprints. Foreign dollar recipients are NO
LONGER going to prop up the US fixed income markets by buying them
endlessly. They are sending the US Congress an important message. Will
they listen? They understand where the game is headed as the United
States economy is faced with dealing with 70 trillion dollars worth of
future obligations and must pay for it with an economy that is 13
trillion dollars in size but makes barely 3 percent growth if you
believe the phony inflation numbers, and no
growth if you believe the headline CPI (Consumer price index) and PPI
(producer price index).

Anyone
who invests based on the core numbers is insane, so you can call most of
Wall Street insane, as this week's TERRIBLE CPI and PPI reports were
heralded as demonstrating receding inflation based on the core numbers.
Take a look at the latest CPI report:

Headline
was reported at 7 tenths of 1 percent, an 8.4 percent annual rate.
Notice the increase in prices of everyday items? The decreases are in
seldom purchased categories, I know I don't regularly buy a computer,
a new or used car, information technologies; hardware and services while
used are used and purchased once, then set up and used for years. This
is how they paint the numbers to FOOL YOU! I am definitely in the Dark
blue regular purchase categories. How about you?

Analyst
after analyst from the money center banks and big brokerages stepped
forward on the financial news networks and pointed to the core numbers
as evidence of receding inflation. These core numbers were put forth as
the thought to why the market rallied explosively this week; inflation
is tame so paper can go up. Keep the �PAPER GAME� going for their
benefit at any price. It couldn't be further from the truth. Self
preservation is beginning to emerge as these foreign central banks and
private investors� plans are unfolding in the emerging �CRACK-UP
BOOM�. They
are buying stocks! Instead of buying UNOCAL or ports they are buying
stocks, one share at a time; they are buying into private equity firms
to avoid direct ownership of these productive assets. The CRACK-UP BOOM
is being born!

Let's
do some math: 13 trillion dollars making 3% a year is generating
approximately 390 billion dollars a year in income. The Federal Debt
that is officially recognized at about 9.5 trillion dollars at 5%
interest requires 475 billion dollars of interest a year. This debt
number does not include state, municipal and private debt obligations,
which push the total owed to over 30 trillion dollars, so now the
required debt service is 1.475 trillion dollars of interest owed. An
economy making 390 billion dollars a year will take �HUNDREDS OF YEARS
TO PAY OFF THIS AMOUNT OF DEBT�, even if the compounded interest
payments are not added in. Anyone who really knows the extent of the
unfunded liabilities knows the numbers above are very conservative.

There
is no way you can make this math work; add in the unfunded entitlements
and theft of Social Security and Medicare trust funds by the �PUBLIC
SERVANTS� and there is only one conclusion you can come to! GET OUT.
Why is the dollar not cratering? Because no one is going to yell
�FIRE� in the theatre. They are not going to immediately try to
exchange dollars for another currency; they can't! The dollar dwarfs
the float in them all. They have to buy something that will just reprice
in the disintegrating dollar. Stocks, real estate, fine art, anything
that can’tbe printed by the public servant PIRATES.

The
smartest of them (dollar holders) are going to quietly get out of their
seats and head for the exits as quietly as they can and without
confrontation with those brilliant boys and girls in Washington DC
(mental pygmies, lawyers are economically illiterate). They are going to
exchange all that �soon to be worthless� paper with someone who
doesn't yet realize what the game is. They are going to seed their
economies and buy exports from the US and send them home to themselves.
Just as they exchanged paper for wealth during the US import and deficit
spending boom, the process is just now going into reverse. Slipping the
dollars back to the ultimate fools who elected the rascals. They are
going to acquire raw materials, units of production called �STOCKS�,
real estate, fine art, precious metals (who do you think is taking down
the enormous G7 gold sales? Gold didn't go down, the game just went
around a corner), energy holdings, �you name it� - assets of any
stripe from anybody in the world who will still take a dollar for them.

They
are going to do it as quietly as possible, and let the press shout the
�GOOD NEWS� that the asset markets are �SKYROCKETING� higher to
the public. Tell them the good news as their dollars are disintegrating
in their bank accounts at the same rate. And let the sellers of the
assets and the recipient of those things we call dollars worry about
collecting from the US government.

The
indirect exchange called the �CRACK-UP BOOM� von Mises talks about
is unfolding before our very eyes. See it and turn it into an
opportunity. It will take many years to reach its endgame. And if you
people who hold your wealth in other currencies think you are safe?
Think again, your central banks and financial authorities are just a
step behind as they have embraced the American recipe in their own
economies and monetary systems. There are dollar denominated debt
bubbles now, but there will be debt bubbles in every country in the
world before this is over. Only it’s much earlier in the game�.

In
conclusion, the world's economies are going to explode with activity;
10 trillion dollars stands on the bid, new exports of dollars (800
billion of them every year, more than twice the total growth in GDP of
390 billion dollars) will be recycled just enough to hold up the
American financial system. These recycled dollars will be supplemented
by the buyer of last resort, �the Federal Reserve�, and the bills
will be sent to the children of America in the form of Debt obligations
to the �Federal Reserve� (Oh, what a surprise the US electorate is
in for when they learn the Federal Reserve of the US is owned by foreign
bankers and that they have been ENSLAVED in debt). Who brought them this
wonderful banker? Their very own elected representatives and PUBLIC
SERVANTS.

While
the rest of the exported dollars are directed into assets and
investments that can create and stand as a storehouse to wealth. The
seed-corn of Globalization and capitalism. Those factories, assets,
investments and their outputs will just reside in things that can be
repriced as the inevitable printing presses eat away at the value of
what we used to store our wealth in, called paper money and currencies.
That is where wealth will be stored for the foreseeable future, jobs
will be born, roads built, factories started, technology deployed and it
will be purchased from the providers with dollars that reside around the
world. �FINGERS OF INSTABILITY� will
rise and fall with regularity. The only thing you must AVOID at any cost
is the BOMB, er BOND market. How do we know its going to happen? Just
look at history�s lessons. These themes are opportunities or pitfalls
to you. You get to decide.